Chandru Chawla

  • The biggest need of farmers is remunerative pricing and its stability. Legally mandating MSP on C2 is the only answer
  • The APMC system is not a monster that the farmers need rescue from. Over 2/3rds of agricultural trade already happens outside this system
  • The farmers and cultivation laborers first need impactful Covid-19 rescue for another year before any reform can even begin to have some effect
  • Farmer’s price realizations will not magically increase because private players will come in. The private players are not there to do charity. The US example is stark. So is Bihar, that chucked APMC system in 2006
  • New bills may mortgage the nation’s food security in the hands of few crony capitalists, creating a monopsony that may choke the nation. The pandemic showed us that “privatization of health services” and “delegating the nation’s health to the private sector” is not the panacea for widespread access to and affordability of health services. Our Covid-19 response continues to expose the State’s historic blunders in according priority to health
  • In the latest quarter data where the economy has shrunk by 23.9%, the agricultural sector is the only one that has stayed afloat. Tampering with it through unfettered privatization may extinguish the only bright spark at the moment
Illustration Credit: Derek Monteiro

Rakesh Jhunjhunwala must be complimented on his vision of the future that visualizes an Indian farmer getting Rs 10 for potato (up from Rs 4) and the consumer paying Rs 25 for the same (down from Rs 40). This is every farmer’s (assuming Rs 10 is well over his cost of production) and every consumer’s dream. Profitable farming, good returns for the trader and affordable food for the citizen. Is privatization and corporatization of agriculture and the nation’s food basket, the answer? The iconic investor seems to think so. In fact, the 3 bills collectively are being referred to as the 1991 moment for Indian Agriculture Reform! A very high bar indeed!

Who will Squeeze the Trade?

In a free market, falling consumer prices are usually due to oversupply or depressed demand or both, often leading to increased competition. Rising procurement costs are an outcome of the opposite – under supply or rising demand. Can both happen together? In the above hypothetical example, the present difference between farmers sales prices and consumer retail prices is Rs 36. This difference is made up of taxes, mandi costs, agent commissions, wastage, spoilage, post-harvest losses, storage, distribution costs through the chain from farm gate to consumer markets. What is the scope for this difference to shrink from Rs 36 to Rs 15? While the proposed bills nullify taxes for private players operating outside government APMC mandis, and may also eventually reduce middlemen costs, these players will still need to invest in a vast logistic infrastructure to get economies of scale in other areas. Even if you assume that the top 10 national conglomerates participate in this activity and there is “free competition”, they have hypothetically 100 mill full time cultivators to choose from – given that you can now buy from anywhere and sell anywhere. Even if one assumes that farmers organize to form Farm Producer Organizations (who do not get the same privileges as private players in this policy!) at 10,000 per FPO – the challenge of doing so is not insignificant – the 10 conglomerates will still have as many 10,000 organization choices for their procurement. Essentially the buying power of a Giant 10 vs the 10,000 much smaller organizations who are hawking a perishable produce whose value shrinks by the hour. Is this likely to be an even negotiation? Why should these buying conglomerates part with this arbitrage, when they have large investments to make – some estimates are of the order of $ 20 bill – in cold storage, sorting, processing and distribution? With unshackling of contract farming and further “ease of land acquisition” bills – what is the most likely scenario? More farmers leaving farming and selling their land to corporate Agri-companies? More urban to rural shift? Let’s take a step back.

In 2004, the UPA led government set up the National Farmers Commission and requested the Swaminathan Committee to investigate the distress in the farm sector and to come up with recommendations. These were universally acknowledged as the most comprehensive set of studies and possible solutions in this sector. Some of the areas identified included:

  1. Disproportionate land holding at the top of the pyramid in relation to the bottom. To be reduced by allowing tillers to be landowners
  2. Eliminating diversion of agricultural land to corporates for nonagricultural purposes
  3. Giving farmers a Minimum Support Price and guaranteed government procurement, across a wider set of commodities at 50% over production cost C2 – costs to comprehensively include direct costs plus costs due to family labor plus interest and land holding costs. By far, this was the most important reform that would have far reaching impact on farmer’s viability and sustainability.

The promise of implementing true MSP has been made by several successive central and state governments. However, till date, its only in Punjab, Haryana and selectively in Telangana, it been well implemented.

Why is the MSP / C2 important? Because it ensures four things: that there is a price reference, that there is adherence to it, the invisible costs due to family labor and land are reimbursed and that the farmer makes a profit so she can plough some back for the next season. Yet it is routinely seen across states, with some exceptions, that despite 22 crops having MSPs (not the true MSPs yet!)  announced each year, the government procurement happens mostly in wheat and paddy. Prevailing market prices are routinely at 40-50% below MSPs. Maize, cotton and rice, this year in Punjab, is already seeing prices 30% below MSP. It is not surprising that rising debts and farmer suicides continue to plague this sector.

Reforms are needed. Some have happened

The agricultural sector does need reforms – Fair prices, bursting some cartels and invisible political interference. But what is the promise in the 3 new bills? What should be read between the lines? One must note that a fair bit of policy change has already happened. Majority of the states had already adopted deregulation of fruit & vegetable marketing, E-trading, single trading license, direct marketing, private sector mandis. Bihar, Kerala and some UTs had done away with APMC systems altogether. These reforms had resulted in the following: nearly two thirds of farmers’ produce were being sold in free markets (outside of APMC mandis), with over 94% farmers having access to private markets but only 6% of produce fetching MSPs. Bihar had been APMC-free since 2006, but the total privatization had seen negligible corporate investment and such paltry prices, that Bihar farmers would often resort to illegal selling in Punjab. In fact, in 2013, only 4% of farmers in Bihar got prices nearing MSPs for paddy and wheat, while in the same year, 74% of Punjab farmers got MSPs. Bihar farmers migrated to cities en masse to find alternate employment and only now due to Covid-19, millions were forced to return to their villages. Bihar failed to deliver on its promise of becoming the number one food basket of the country, while Punjab still dominates in its ranking due to the widespread network of APMC mandis implementing MSPs consistently.

The 3 farm bills must be read together to understand their impact. Their stated intent is laudable. They seek to free the farmer to sell his produce anywhere he gets the best price. They allow deregulated contract farming through private investment. They decriminalize and unshackle “hoarding food stocks” – all in all to create large scale free enterprise in the farm sector. Can one visualize a farmer in Begusarai hopping on his bullock cart to go to Cochin where he has been promised a better price for his onions?

The Fine print

  • The definition of “trade area” excludes mandis formed under State APMCs. While allowing for emergence of private mandis, there was no reason to exclude existing ones. This trade area will be unregulated, with no mechanism for the government to know who is buying what, from whom and at what price – to even understand if the sector is working well and at fair principles.
  • The “trader” definition has been widened to include practically anybody with a PAN card. In APMC mandis, there was a license / registration process to register Arhatiyas. The main aim of this system was to assure the farmers of the financial credibility of the Arhatiyas. While the new system sounds more democratic, how does a farmer get this assurance?
  • The new market system frees private trade areas from any fees, cess or levy, giving it an unfair advantage of 7-8% over the APMC mandis, where such levies are sources of revenue for the states. This will spell the death of APMC mandis in due course, as the experienced Arhatiyas will be the first to move out to save costs. This death blow will also rob the government of “established systems of market intelligence” curtailing its ability to step in even in crisis situations like drought, pandemic, etc. This makes the unregulated unshackling of “hoarding” even more tenuous. If APMC mandis collapse, will the collapse of the MSP system be far behind?
  • For resolving disputes, farmers will have to approach Magistrates instead of Civil courts, robbing them of access to justice. How will a farmer be able to negotiate a fair contract with a corporate entity in the first place, given the disproportionate legal prowess that the latter will have at its command?
  • Contract farming has mostly been dealt with as if it were corporate farming. The legalese is left to voluntary arrangements between farmers and sponsors, with utter disregard for the disproportionately higher prowess with the latter.
  • There is nothing positive in the direction of crop insurance, disaster compensation, loan waivers.

With the government Mandis designed to die, the MSP system will have an inevitable death, despite the assurance from the honorable PM. The government should know, that despite a brute majority in the two Houses, that it faces a trust deficit with citizens. The list of broken or insincere promises is too long – the government will never privatize Railways or Corona will vanish in 21 days or no foreign power has entered Indian territory – to name the most recent ones. And the most relevant ones were to implement MSP / C2 within one-year of 2014 elections and double farmers’ incomes by 2022 from 2016 levels! The haste and utter disregard to parliamentary process in passing the bills – only raises more doubts.

What does the US farm sector teach us?

The US farm sector is one of the most sophisticated in the world. Its markets have been privatized for decades. There are commodity exchanges for price discovery and futures trading. There are specialized crop and disaster insurance products as well as debt instruments. There is both family-owned and corporatized farming using some of the most advanced technologies and farm inputs, with some of the most highly prized advances in seeds and fertilizers. Yet, this vibrant paragon of free enterprise saw $ 19 bill in subsidy payouts to farmers in 2019. Why does a functioning private sector with free enterprise need bail outs every year? Because the government deems it necessary to protect farmers against fluctuations in prices, yields and revenues. These subsidies also include support for climate related risks, conservation programs for water bodies and wildlife, disaster mitigation and local research. In 2015, the subsidy bill amounted to 15% of farmers net profits! In 2019 this was nearly a third! The free enterprise has unsurprisingly not helped in encouraging good agricultural practices. On the contrary one has seen widespread degradation in  soil health, nondiverse crop rotations, heavy fertilizer and pesticide use, and tillage. Despite the subsidies, the farmer bankruptcies are at an 8 year high, as farmers face trade battles, rising farm debt, prolonged low commodity prices, volatile weather patterns and deadly animal diseases. Since 2013, farmer’s net incomes due to farming activities have suffered a nearly 50% dip due to declining commodity prices. As an example, soybean prices have fallen from a high of $ 600 per ton in 2012 to a half in 2020! Over half of the US farmers currently have negative net farm incomes! Suicide rates have increased by 40% over last two decades. The questions remain – why has an extensively privatized and corporatized sector contributed to declining and now negative net farm incomes? Why have price realizations for farmers fallen? Why is the sector still a victim of eco-unfriendly farming practices? Indeed, why does it need continued ventilator support in form of subsidies? On a lighter but relevant note, why is an apple more expensive than a Twinkie chocolate bar?

More problems to follow

The New Farm Bills in India are laying the foundation for replicating the design failure of the American farming system. It may bring further ills along the way – corporatization of water, GMO seed dependence, assembly-line alternates to meat (the “Cow is sacred” gang will love it), more food and nature related patent compromises – all ultimately resulting in making citizens either prey to unhealthy lifestyles or worse – food shortages and rampant food inflation after it has squeezed out millions of small farmers from the system

A lesson from Indian Drug and healthcare industry

The government should learn from the way it has regulated pharmaceutical industry in India. Despite being home to over 3000 pharmaceutical companies with over 10,000 manufacturing sites – which in most counties would qualify as hyper competition – the government still regulates the prices of 847 medicines. It sets the ceiling based on its analysis of the cost structures of a cross section of industry and allows inflationary price increases on a periodic basis. They are not just reference prices, but these prices become maximum selling prices for those drugs, mandated by law. This has worked well by and large. It has assured that the access to essential medicines falling in this list is stable while retaining a reasonable level of competition. The Minimum Support Prices for farmers, based on C2, must follow similar principles. The basket of commodities for setting MSP must be widened beyond grains to millets, oil seeds and a few native regional crops and horticultural produce. The emphasis must be on food crops over cash crops, given the depressed income levels. The declared MSPs must be mandated by law – to be followed strictly by both private and public sector.

The pandemic has also exposed the shortcomings of our healthcare sector, which has seen wholesome privatization and massive corporatization of late. States like Kerala, who over several decades had made state investments in health infrastructure capability and capacity, were able to manage with aplomb. The private sector had to be literally gun-whipped into service and fall in line. Why would the nation willingly hand over the food and agriculture sector to corporates on a platter, without adequate vigilance and safeguards?

The APMC system needs reforms that allow a level playing field between their mandis and the private traders. Both these changes can be incorporated within these bills. This is a simple short-term fix. This needs to be coupled with Special Enhanced Covid-19 Support for all farm owner and laborer families of Rs 7000 per month. Release the 90-mill odd tons of food grain and pulses stock at government warehouses to the marginalized farmers and laborers giving them much need relief and nutrition and making space for the next season’s produce. Longer term fixes include a comprehensive integrated look at rejuvenation of local water bodies, reviving soil health and building support for native seed banks through MNREGA and PM KISAN funds. It must be remembered that Agriculture is a State subject and its best that it gets regulated at State level, with the State getting revenues by helping make it a success in its new form.

All these in conjunction could make the impossible– profitable farming, good returns for the trader and affordable food for the citizen – a reality.

Chandru Chawla has a normal day time job and writes at night to retain his insanity

Derek Monteiro is a laidback artist, poet and composer, who dabbles in jazz to annoy and disperse pesky pigeons on his windowsill
(This article, in an edited form, was first published in on 23 Sep 2020)

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